Feeling a bit Woolley? Third judgment might be the Ultimate one

Cases dealing with accounts of profits for IP infringement are not that common, even though it seems to this Kat that they are occurring more frequently than they used to. One such case is Nigel Woolley and Timesource Ltd v UP Global Sourcing UK Ltd (formerly Ultimate Products Ltd) and Lacmanda Group Ltd (formerly Henleys Clothing Ltd) [2014] EWHC 493 (Ch), a Chancery Division, England and Wales, ruling of Judge Pelling QC sitting as a judge of the High Court. This judgment dates back to 27 February but this Kat has only just got down to writing about it. The ruling is not available on BAILII but has been noted up by subscription-service Lawtel, It follows earlier rulings in March 2012 (noted by the IPKat here) in which the defendants were held liable for passing off (a parallel claim for trade mark infringement being stayed pending the outcome of OHIM proceedings in which the validity of the claimants' Community trade mark was challenged). That decision was affirmed on appeal just a few months later, in July 2012 (as noted by the IPKat here).
Eighteen months later, the court has given a ruling on how much the claimants were entitled to receive on an account of profits.

To remind readers briefly of the facts: Timesource sold watches under various brands, including HENLEY; its director, Woolley, held the HENLEY Community trade mark. Henleys Clothing sold clothes under the HENLEYS brand. Ultimate, an import and wholesale company, entered into licence agreements (i) with Timesource to use the HENLEY trade mark and (ii) with Henleys to use its HENLEYS brand in exchange for royalty payments. Subsequently Ultimate terminated the agreement with Timesource but continued to sell watches bearing the HENLEYS brand.

After it was held that the defendants were liable for passing off, Timesource elected for an account of the profits Ultimate and Henleys had made from their wrongful acts. In these proceedings Judge Pelling QC had to decide whether

(i) the whole of the profit otherwise attributable to Ultimate's sale of HENLEYS watches should be adjusted to account for the fact that a substantial number of the sales of HENLEYS watches might have been attributable to the concurrent goodwill that Henleys enjoyed in the HENLEYS brand, the existence of which had been established at trial;
(ii) in ascertaining the profit made by Ultimate, certain sums should be deducted from the sales revenue;
(iii) the royalties paid by Ultimate to Henleys were properly recoverable from the latter as profit made from passing off;
(iv) any sum was recoverable from Henleys in respect of direct sales made through the HENLEYS shops which were operated by its subsidiary, Henleys Retail.

Judge Pelling QC considered these issues and set down the following guidance:

* the court had to proceed on the basis, established at trial and affirmed on appeal, that there were a substantial number of members of the public to whom it had been misrepresented that HENLEYS watches were HENLEY watches -- and there was nothing in the trial court's order of an account of profits that suggested that the account was to be confined only to the proportion of people likely to have been influenced by the misrepresentation;

* Having concluded that a substantial number of the public had been subjected to misrepresentation, what should then follow was a direction that an account be taken of all the profits Ultimate had made from its tortious acts: to limit the account to be taken to those likely to have been influenced by the misrepresentation would have been almost impossible on any logically defensible basis, and letting Timesource recover all of the profits Ultimate and Henleys had made from the passing off of HENLEYS watches as being, or being linked to, HENLEY watches was not contrary to the approach established in the patent infringement case of Hoechst Celanese International Corp v BP Chemicals Ltd [1999] RPC 203, because that case was not concerned with whether it was necessary in a passing off action to identify the portion of profits attributable to the relevant misrepresentation but to other, less controversial points;

* On any view, Timesource was entitled to recover all such profits made by Ultimate when it sold the misleading products to middlemen;

* No deduction from the revenues generated by the sale of infringing materials would be made in respect of the elements of general overheads which Ultimate had incurred;

* The court would however take account of the losses made as well as the profits, and would set off any losses against the profits to arrive at the profit Ultimate had in fact made;

* The royalties Ultimate had paid to Henleys were not recoverable. First, it had not been conceded that Ultimate and Henleys were jointly liable or joint tortfeasors and there was no finding of joint tortfeasorship. Secondly, it had not been alleged against either defendant that, by granting the licence to Ultimate, Henleys was guilty of passing off. Thirdly, there were no links between Henleys and Ultimate other than an arm's length commercial transaction by which Ultimate sought Henley's licence to use the latter's name and brand. Fourthly, Timesource had not alleged that the licences granted to Ultimate were shams or otherwise than they appeared. Finally, the grant of the licences to Ultimate did not constitute passing off within the scope of the trial court's order;

* No profit was recoverable in respect of the watches sold in shops operated by Henleys Retail. Henleys passed the watches to its subsidiary at cost price, and any profits made by the sale of the watches which had been supplied to Henleys Retail were made by it. There was no evidence of any dividends being paid byHenleys Retail, much less dividends attributable to the sale of the watches.

The judge did not however go further. He explained:

"... I had considered attempting to arrive at the correct final
figures using the spread sheet provided to me. On reflection however, I consider it
better if the parties were to agree a figure carrying into effect the conclusions set out
above which can then be set out in the Order that will follow from this judgment. I ask
that the parties prepare a schedule of profits to append to the judgment which reflects
the conclusions set out above".

Given that this case has trundled along through three rulings and six days of hearings, this Kat wonders whether the sum finally agreed (assuming that a sum can be agreed) will have been worth the effort, and how that sum, once awarded, will compare with the fees earned by two sets of barristers and solicitors.

Both the IPKat and Merpel continue to wonder whether making a successful IP owner elect between an account of profits and an award of damages is within either the spirit or the letter of the Intellectual Property Enforcement Directive,2004/48, which does not appear to impose any such requirement.